Monday, May 4, 2009

California Fiscal Bait and Switch

I'm not an expert in fiscal policy. I don't even play one on television. With that caveat, I would like to comment on the upcoming California special election.Prior to the ratification of Proposition 13 in 1978, Gov. Jerry Brown was building up a rainy day fund to prepare for fiscal emergencies. Republicans argued that the state had no right to hoard "the people's money."

A number of other factors are used to explain why Californians ratified Proposition 13. The most common culprit was the Serrano decision that was supposed to break the link between local property taxes and school funding, which was intended to reduce inequalities between school districts. Many people resented having to pay property taxes to support poor or minority kids. Also, there were some scandals with County tax assessors, but my recollection was that the rainy day fund rhetoric was the loudest.

Proposition 13 changed the political landscape of California. Besides limiting increases in property taxes over and above a fixed formula, this constitutional amendment required a two thirds majority of both houses of the legislature, meaning either party would be unlikely to muster enough votes to raise taxes. After a marathon of political wrangling to finally pass a very late budget, a literal handful of Republicans agreed to vote for the budget on the condition that the state put a number of awful amendments on the ballot.

Bait and switch number one: Today, California's preparing to constitutionally limit spending in order to build up a rainy day fund, which I assume will be a juicy target for future tax cutters.

Bait and switch number two: Another amendment will securitize the lottery, which was initially passed as a way to help fund education, given the constraints of Proposition 13. To make the lottery money more attractive to prospective bondholders, the link between the lottery and education will be broken.